Financing and Development of Local Payment Companies in Indonesia

As one of the largest digital economies in Southeast Asia, Indonesia's local payment companies have experienced rapid growth and fierce competition over the past few years. Below is an analysis of the financing and development dynamics of local payment companies in Indonesia:

I. Industry background

1. market potential

   • Indonesia has a population of 270 million people and over 200 million internet users, but bank account penetration is only about 49%, with e-wallet usage climbing year on year (160 million users by 2023).
   • The government is promoting a "cashless society" and the central bank (BI) has issued a number of e-money licences.

2. competitive landscape

   • Local players face competition from regional giants such as GrabPay and ShopeePay, but are taking some market share with localised scenarios and compliance advantages.

II. Major corporate finance developments

1. OVO

• contexts: Part of the Lippo Group, it operates independently after parting ways with Grab.
• financing: 2023 Rumoured to be in the midst of a $500 million Pre-IPO round at a valuation of perhaps $3 billion; Ant Group had participated in the early stage investment.
• developmental: Covering retail, transport (e.g. MRT Jakarta), utility bill payment; expanding the ecosystem through M&A (e.g. acquiring Taralite to get into P2P lending).

2. DANA

• contexts: A joint venture between Ant Group and Emtek, benchmarking the Alipay model.
• financing: $1.2bn capital injection led by Ant in 2021; recent plans to bring in Middle Eastern capital in response to policy changes in regulatory restrictions on foreign investment.
• developmental*: Integrated with social platforms UC Browser and WeChat Mini Programs, focusing on second and third tier cities.

3. LinkAja

–Background:: State-backed (Telkomsel, Bank Mandiri, etc.), focus on financial inclusion.
–Funding: Series B in late '22 raised $100M from MDI Ventures; targeting break-even by '24.
–Expansion: Government partnerships (e.g., fuel subsidies disbursement), rural agent networks (over 500k agents).

III. *Emerging Players and Niche Tracks
1.Flip (Cross-border & corporate payments).
- Raised 120M Series C in '23 led by Tencent,valuation10B+.
- Differentiator: Low-fee B2B transfers and integrations with accounting software.

2.Xendit(digital banking infrastructure).
- Unicorn status after '22 funding ($300M led by Sequoia).
- Serves SMEs with payment APIs, recently launched BNPL Services.

3.Akulaku(Buy Now Pay Later BNPL).
-Acquired strategic investment of $200M from Siam Commercial Bank '23, Thailand.
-Cuts into e-commerce instalments through virtual credit cards.

IV. *Challenges and trends
1.Regulation:: New BI regulations require e-wallets to be connected to the national clearing system (BI-FAST), increasing compliance costs.

2.*Profitability Pressure:
-Most companies are still losing money (e.g. OVO EBIDTA margin of about 15%), shifting to higher margin business (lending/insurance distribution).

3.*Consolidation:
-Expect a wave of mergers and acquisitions over the next two years (e.g., GoTo's GoPay may merge with a competitor).

4.*Regional Expansion:
-Headline companies exploring going overseas (e.g., LinkAja entering the Malaysian Chinese community).

V. Investor focus
- Unit Economics:: Whether CAC is out of control due to excessive subsidies;
- Policy Risk:: The foreign ownership cap may be further tightened;
- Synergy with ecosystem players (e.g., Tokopedia integration with OVO for conversion rate improvement).

Further targeted searches can be made for more detailed financial data or up-to-date trading information on specific companies.

VI. In-depth segmentation analysis: competitive differentiation strategies of Indonesian payment companies

1. Localised scenarios for E-Wallets

Indonesia's local payment companies boost user stickiness by tying in high-frequency consumption scenarios, for example:

• OVO: Deep co-operation with Lippo Group's retail brands (e.g. Matahari Department Store, Hypermart Supermarket) to offer exclusive discounts.
• DANA: Leveraging Emtek's media ecosystem (e.g., Vidio, a video platform), the company has launched a "watch ads and earn points for cash" model.
• LinkAja: Government partnership projects (e.g. BPJS healthcare contributions, Pertamina petrol station payments) create a monopoly advantage.

challenge: GrabPay/ShopeePay continue to squeeze the market through high-frequency transactions in online car rental and e-commerce.

2. B2B payments and the rise of financial infrastructure

Emerging players avoid the C-suite red ocean and move to the enterprise services track:

• Xendit(valued at over $1bn): one-stop API for SMEs and developers, supporting cross-border collections, sub-accounts and demo accounts, with customers including Traveloka, JD.id, etc. Revenue growth of $300% in 2023 with the addition of BNPL services.
• Flip Corporate(invested by Tencent): focuses on low handling fees for corporate-to-public transfers (1/10th of traditional bank rates) and integrates financial software features such as automatic reconciliation.

tendencies: BI plans to launch a real-time central bank digital currency (CBDC) in 2024, potentially reshaping the B2B payments landscape.

VII. Capital movements and strategic adjustments

(1) Tracking Recent Financing Events

(Note: Kredivo has been listed through the SPAC merger but its share price is depressed, reflecting investor concerns about the profitability of fintech in Indonesia).

(2) Retreat of Foreign Capital and Entry of State Capital

• Case 1: Ant Group reduces DANA stake to below 151 TP3T to comply with new BI regulations (foreign ownership cap 201 TP3T); vacancy taken over by Middle East fund (rumoured ADQ Abu Dhabi).
• Case 2:: Bukalapak's Allo Bank receives capital injection from BPJS to transform itself into an "inclusive digital bank".

VIII. *Impact of regulatory developments
Key Policy Changes 2024.

1. QRIS Harmonised Standards MandatoryAll mobile payments must be connected to the national two-dimensional code system, and the cost of technological transformation for small players has increased dramatically.

2. Escalation of data localisation requirements:: The need to store user data in domestic data centres may affect the operational efficiency of multinational enterprises.

3.Digital banking licences tightened*:: The BI moratorium on the issuance of new licences (there are currently seven) promotes industry consolidation.

IX. *Key points to watch over the next 12 months
1.Whether or not the IPO window reopens:: OVO/DANA will be the toast of the town if it is listed on NASDAQ or IDX.

2.Super App Gaming: Who can win in the aggregated payments space from GoTo (Gopay), Grab and local consortiums.

3.BNPL Regulatory Risks*:As delinquency ratios rise (current industry average 8%), BI may introduce interest rate caps modelled on Singapore.

It is advisable to keep an eye on signals from industry summits such as Next Money Indonesia and digital investment moves by state-owned banks such as Bank Mandiri - which are becoming important LPs (Limited Partners) for local fintech. For operational data on a specific company, dig deeper into financial reports or interviews.